Dollar Rises as Russia Sees No Alternative to U.S. Currency

June 15 -- The dollar rose the most in a week against the euro after Russia’s Finance Minister Alexei Kudrin said the nation has full confidence in the U.S. currency.

The greenback advanced against 14 of its 16 major counterparts as Kudrin said in an interview after meeting officials from the Group of Eight nations two days ago that it was too early to speak of an alternative to the world’s main reserve currency. The euro extended losses after Britain’s Telegraph newspaper cited Germany’s top industrial group as saying the nation’s credit conditions are worsening.

“The U.S. Treasury is persuading key partners to provide supportive comments arguing that they shouldn’t shoot themselves in the foot if they hold large dollar positions,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. “Whether the talk is backed up by action remains to be seen. I’m still a dollar bear.”

The dollar advanced as much as 1.2 percent to $1.3844 per euro before trading at $1.3845 at 7:03 a.m. in New York, compared with $1.4016 on June 12. The U.S. currency appreciated 0.7 percent to $1.6337 per pound from $1.6443 and climbed 1.1 percent to 1.0906 Swiss francs from 1.0791.

The U.S. currency may gain about another 1.5 percent to about $1.3670 per euro in the next week before declining to a level as weak as $1.45 within a month, Derrick said.

Ten-year Treasury notes rose, extending their run of gains to the longest in a month, on speculation a U.S. government report will show overseas demand for the nation’s assets increased in April. The yield on the security fell 0.07 percentage point to 3.74 percent.

Dollar Index

The yen increased 0.2 percent to 98.21 per dollar from 98.43 and advanced 1.3 percent to 136.04 versus the euro from 137.89 yen as European and Asian stock markets slipped, discouraging investors from buying higher-yielding assets financed by loans in Japan.

The Dollar Index gained for a second day after Russia’s Kudrin said the fundamentals of the U.S. currency are still in “good shape.” He spoke following a meeting with finance ministers from the Group of Eight nations in Lecce, Italy.

Central bank diversification “has been a burden for the U.S. currency for the last couple of weeks,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt, in an interview on Bloomberg Television. “But there is no immediate alternative for the dollar.”

G-8 Statement

The dollar fell 9.8 percent against Brazil’s real and 2.9 percent versus the euro in the past month partly on speculation record U.S. budget deficits will undermine the currency as a store of value.

Kudrin’s comments came just days after President Dmitry Medvedev questioned the dollar’s global status, joining the Chinese central bank’s Governor Zhou Xiaochuan in indicating the world may need another benchmark for settling international debts.

The G-8 finance ministers said in a statement on June 13 they will start planning exit strategies for when sustainable growth returns. It’s still too soon to roll back budget deficits and bank bailouts, they said.

The Dollar Index, which the ICE uses to track the currency against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, gained 0.7 percent to 80.730 today.

International investors bought $57.5 billion more in long- term U.S. equities, notes and bonds than they sold in April, up from net purchases of $55.8 billion in March, according to a Bloomberg News survey of economists before the Treasury Department’s report today.

German Outlook

The euro fell after the Telegraph cited Hans Heinrich Driftmann, president of the German Chamber of Commerce and Industry, as saying funding conditions for German businesses are tougher now than they were at the peak of the global crunch months ago.

“From such a high authority in the Germany industry, it’s clearly negative for the euro and it puts extra pressure on the European Central Bank to take further action,” said Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp., Australia’s biggest lender by market value. “It’s a further reason to be selling the euro on the day.”

The chamber’s survey of German industry, to be released this week, found that more than a third of all large companies faced tightening credit conditions, if they can borrow at all, the Telegraph said.

New Zealand’s currency dropped versus the U.S. dollar for the first time in three days, paring its gain in the past three months to 21 percent.

The South Pacific nation’s farmers face at least a 12 percent drop in milk prices as the nation’s currency rises at its fastest pace since 1985, according to Auckland-based Fonterra Cooperative Group Ltd.

Similar concerns are besetting Canada and Australia, two other commodity-rich economies. All three countries’ dollars are close to posting their strongest quarters against the greenback since at least 1971.